Las Vegas Sun

March 28, 2024

Profit for Las Vegas-based Allegiant misses on higher fuel prices

Allegiant Airlines earnings report (Nasdaq: ALGT)

  4Q 2010 4Q 2009 % Change 3Q 2010
Revenue $162 million $134.7 million +20.3% $163.6 million
Earnings $12.4 million $10.5 million +17.5% $13.2 million
Earnings per share 64 cents 52 cents +23.1% 67 cents

+ By passenger volume, Allegiant is the No. 7 carrier at McCarran International Airport.

+ Allegiant serves 73 cities, four more than at the end of 2009. It has 45 Las Vegas routes compared with 40 a year earlier.

+ Allegiant entered into a three-year agreement with Alamo Rent A Car to be the exclusive car rental provider for the airline through 2013.

+ In the fourth quarter, Forbes magazine named Allegiant one of America’s 100 best small companies.

+ The company reported a 52-week stock price high of $58.21 on March 24.

+ Jan. 31 stock price: $46.54.

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Las Vegas-based Allegiant Travel Co., the parent company of Allegiant Air, closed out 2010 with its 32nd straight profitable quarter and an 18.9 percent increase in revenue for the year, but a 13.9 percent decline in earnings over 2009.

The airline, which specializes in delivering passengers from small cities across the United States to 11 leisure destinations including Las Vegas, reported earnings of $12.4 million, 64 cents a share, on revenue of $162 million for the fourth quarter that ended Dec. 31. That compares with earnings of $10.5 million, 52 cents a share, on revenue of $134.7 million for the quarter.

Maurice Gallagher, chairman and CEO of Allegiant, blamed rising fuel costs for eating into the company’s profitability.

“The substantial increase in jet fuel prices which peaked during the last two weeks of the quarter weighted on the quarter’s results,” Gallagher said in a release accompanying the announcement of earnings today. “In three months, our scheduled service cost per gallon increased almost 11 percent or 25 cents to $2.61. If we had maintained our third-quarter unit fuel cost, our operating margin would have approached 17 percent. In spite of this, we were able to grow earnings per share by 23 percent compared to last year’s fourth quarter.”

Allegiant flies to 73 cities and has 45 Las Vegas routes, and by passenger count ranks as the seventh busiest carrier at McCarran International Airport.

For the quarter, Allegiant had an 86.6 percent load factor – the percentage of paying passengers on flights – 0.1 percentage points lower than in the fourth quarter of 2009.

In today’s conference call with investors, Gallagher and Allegiant President Andrew Levy said 2011 would be an investment year for the airline as the company works to close deals on the acquisition of six Boeing 757 jets and to add seats on every plane in its fleet of 51 MD-80 jets.

The company has executed term sheets on leases with European operators for three 757s, pushing one of those transactions from the fourth quarter of 2010 to the first quarter of 2011. Gallagher said the company anticipates having at least one of the 757s on its operating certificate by summer.

Company officials, however, continued to keep details on routes to be served by the 757s close to the vest when questioned by investment analysts. The airline announced last year that it would fly to Hawaii from the West Coast with the planes, but hasn’t given any details about what cities would be served.

Gallagher also said it would take about 12 months to complete the modification of the MD-80 fleet, adding 16 seats per plane to have 166-passenger aircraft.

Gallagher also offered his most extensive public comments to date about the December vote by Allegiant flight attendants to approve representation by the Transport Workers Union. He said he believed flight attendants aren’t as upset about pay as they are about work-scheduling issues.

“I think they have been frustrated with that,” he said, “and part of the reason for that is that we’ve grown. As you get bigger it isn’t as easy to communicate with people.”

He said he thinks it will take awhile for contract negotiations to occur because the process is new and because Allegiant doesn’t operate like a typical airline.

“It’s not an overnight process and everything is going to have to be negotiated,” Gallagher said. “Don’t bring us the usual union agreement because we’re not the typical company. I think it will take longer than most negotiations.”

He also said unionization “clogs the arteries and makes you less quick and not as nimble as you ought to be to be on top of your game. We will not let a third party be our spokesperson.”

Executives said they expect rising fuel costs will continue to be a challenge to the company, but its best strategy to control costs is to cut capacity.

Allegiant does not have a fuel-hedging program in place, a strategy airlines like Southwest have used to protect itself from spikes in energy costs.

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